Q&A: EA CEO speaks on proposed Take-Two deal

Consolidation continues to be a major theme in the gaming industry, as Electronic Arts today made its intentions to acquire Take-Two Interactive public. Coming off last year's big acquisitions of BioWare and Pandemic, EA offered to take over Take-Two for nearly $2 billion in cash, a 64 percent premium over the Grand Theft Auto publisher's aggregate stock price. Take-Two's board of directors flatly turned the offer down, saying the price was too low and the timing wasn't right with Grand Theft Auto IV ready to hit retailers in just a couple months.

With the publishers releasing dueling press releases about the proposed deal today, Electronic Arts CEO John Riccitiello took some time to answer a handful of questions for GameSpot about why the publisher wants Take-Two, concerns over corporate culture clashes, and why this deal didn't happen a year ago.

GameSpot: This news spooks a lot of EA and Take-Two employees who probably feel that they're about to become redundant, in the various sports divisions especially. If this proposal were to be accepted, what level of employee cuts and consolidation would you expect?

John Riccitiello: I think it's way too early to tell, but I will tell you that our attraction to the asset of Take-Two is because we love their studios--Rockstar, Visual Concepts, Irrational [2K Boston and 2K Australia], Firaxis--and we like their intellectual properties. This transaction as we're proposing it is not about synergies at the studio level.

GS: Are you aware of any change-of-control clauses that would possibly prevent Take-Two's various licenses or studios from becoming part of EA if the buyout were accepted?

JR: Nothing that we can talk to you about because we're not in the business of disclosing confidential Take-Two information, but we're very confident in this transaction. We think it's a great deal for their shareholders, it's at a huge premium. And as a stand-alone company, Take-Two has a series of operational and scale issues, legal issues, financial issues... We think their shareholders win in a huge way.

For us, it's all about their studios and their intellectual properties, which we very strongly desire to have as part of EA. And we project it to be accretive for us, so it's a win for EA. We think we would make a great home for their studios. Our decentralized label model is in many ways inspired by conversations I've had over the years with Sam Houser, who runs Rockstar. We think it's that simple. It's great for their shareholders, it's great for our shareholders, and great for their studios.

GS: There were rumors and speculation about a buyout last year, and one analyst said the corporate culture of a company that produces games like GTA and Manhunt wouldn't mesh well with that of EA...

JR: There was speculation last year and I will admit that in fact EA was looking at these guys a year ago. The reason we didn't conclude that with an offer is that I was just coming into EA at the time and I knew there were changes I was going to make at Electronic Arts and I wanted EA to be in a position to feel like its own house was in order. We've now got that in place and the organization feels strong and is working well. Really what I was waiting for was to affect those changes, which I think have been well communicated in the market.

GS: EA has released M-for-Mature-rated games like The Godfather before, but one notorious example, Thrill Kill, was never released after EA acquired its original publisher, Virgin Interactive. If EA controlled Take-Two, would we ever see a game like Manhunt come out of EA?

JR: Well, first off, we're in a different time with a different management team. I was the guy who got us into The Godfather business, who got us into the Def Jam business. I'm personally a huge fan of BioShock, one of my favorite games of last year, and I'm very much looking forward to playing GTA IV. I'm going to buy it on April 29.

Frankly, my view is that I'm a real believer in the Entertainment Software Association and their analogous organizations around the world, and I don't have an issue with M-rated content. Neither me nor the company nor the board. Times were different in the mid- and late '90s. As an industry we were just coming to grips with M-rated content.

I never saw Thrill Kill, and I applaud you for digging up that little piece of history. I'm not sure if I would have liked it or not. I'm guessing I might have liked it, but I have no idea.

GS: What do you think of the job Take-Two's new leadership has been doing in trying to turn the company around over the last year?

JR: I happen to think that [Take-Two chairman] Strauss Zelnick, [CEO] Ben Feder, and the rest of the team are really smart guys. I think the moves they made are positive and it's been reflected in the share price. This is a tough industry, and I think they've done a fine job.

GS: Take-Two has issued its own press release today, and it characterizes EA's offer as an attempt to get on the Grand Theft Auto IV bandwagon just before the game's hugely anticipated launch.

JR: That's sort of interesting, but I would offer a couple of thoughts. I think the value of GTA is already "baked in" in many ways. The analysts that are forecasting Take-Two for just their fiscal year have between 8 million and 12 million units of GTA IV forecast. Frankly, the question is what comes after GTA, because that's already in the value of the stock. Realistically, we don't anticipate closing the deal before GTA ships. We're anticipating a transaction that would close certainly not before the GTA launch, so that feels very much like a red herring to me.